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In the year 1994, the Reserve Bank of India (RBI) launched a scheme to ensure the collection and dissemination of information related to loan defaulters. During the initial phases of the scheme, the RBI collected information pertaining to only those borrowers who had failed to repay debt obligations of ₹1 Crore or above. Five years later, this threshold was reduced to ₹25 Lakhs.

To make the classification easier, the RBI began dividing the list of defaulters into two categories: wilful and non-wilful defaulters, depending on the circumstances that caused the default. The purpose of this scheme was to deduce who was genuinely in more debt than they can cover and who was deliberately not choosing to clear their dues.

What is CIBIL Defaulter List?

CIBIL or any credit bureau does not maintain any list of loan defaulters. However, as mentioned above, a list of wilful defaulters who owe ₹25 lakhs or more to any of the financial institutions (banks/NBFCs) in the country is maintained by the RBI. This information is also made available in the public domain so that all financial institutions follow due diligence before granting them any loans in future.

Wilful Defaulter Meaning

A wilful defaulter is defined as someone who:

  • Makes very little to no payments deliberately in spite of having a good net worth and a healthy cash flow

  • Misuses the borrowed money for unstated reasons

  • Embellishes information

  • Sells-off collateral without the knowledge of the bank

  • Conducts transactions that are fraudulent in nature

How to Remove a Suit-Filed Account From Your CIBIL Report

If an individual has defaulted on their loan, their bank and/or financial institutions will most probably file a lawsuit against them in a court. If the borrower has crossed the ₹25 Lakhs threshold wilfully, the information will be made available on the public database as well.

The first course of action for a borrower with a lawsuit against them is to approach the lender for an out-of-court settlement. If the lender considers this option, they must report it to the court and, simultaneously, withdraw the case that was filed against the borrower. However, it must be noted that the case will only be forfeited ahead of the first hearing if the defaulter has settled the loan in its entirety. The bank will also be required to report this to CIBIL and other credit bureaus so that their records eventually reflect the settlement.

On the surface, a settlement appears to be a convenient route to work out your debt obligations with the lender; but, there is something that borrowers must be aware of. If the borrower has been granted a concession on the dues that they owe to the lender, their CIBIL report will include the term “Settled” once the settlement is done. It will remain on their report as a semi-permanent stain that they will only be able to get rid of after 7 years. Such remarks in one’s CIBIL report can cause difficulties going forward since potential lenders will think twice, or worse, completely refrain from approving loan or credit card applications.

In case the borrower is not able to pay even the settlement amount, they must justify their inability in the court. Based on the court’s decision, the lender will then either offer a lower settlement amount or may simply “write-off” the loan. However, “Written-off” has, more or less, the same implication as “Settled” and can cause you trouble when applying for credit in the future.

How To Avoid The CIBIL Defaulters’ List

When you apply for a loan, the financial institution goes through your credit score and credit history to look for any discordance against your name. To avoid being labelled as a defaulter in your report, you need to work on improving your credit score. Here are a few important pointers on how to maintain a clean CIBIL record.

  • Regularly Check Your Credit Report: It is advisable to keep tabs on active and closed loan accounts and have a good understanding of your credit report. In case you notice any error or discrepancy, you must inform CIBIL immediately.

  • Clear Off Your Dues on Time: Defaulted or delayed payments are one of the major reasons for a poor credit score. When you apply for a loan/credit card, the lender goes through your credit profile; if the report contains a “Settled” or "Written-Off" status, it makes the lender wary of your creditworthiness, and they might reject your loan application.

  • Spend Within Your Credit Limit: When you apply for a credit card, it comes with a set credit limit. However, it is best to utilise only up to 30% of your credit limit as spending more will only lead to questions about your financial capability to pay off the dues. Such credit behaviour, i.e. a high credit utilisation ratio, also negatively impacts your credit score.

  • Avoid Multiple Loan Applications: Multiple loan applications get reflected as hard inquiries on your CIBIL report, and multiple hard inquiries will make you look like a credit-hungry borrower. Avoid applying for loans too frequently as this behaviour will also get noticed and may raise suspicion about your creditworthiness. Therefore, you should apply for one loan at a time to maximise the probability of loan approval.

How Does the CIBIL Defaulter Status Affect Loan Approval

If a lender reports you as a defaulter, the same also reflects on your credit report and has an adverse impact on your CIBIL score. It might be difficult to get loan approvals (unsecured loans in particular) in future with a low CIBIL score. Even if a lender approves your loan, you will most likely be charged a hefty rate of interest. It is, therefore, a good idea to keep tabs on your CIBIL score and check your credit report on a regular basis. You can check your CIBIL score on Bajaj MARKETS by following the below-mentioned steps:

  • Step 1: Visit the official Bajaj MARKETS website and click on “GET YOUR FREE CREDIT REPORT”.

  • Step 2: Enter the required personal details in the designated fields on the following page and click on “Get OTP”.

  • Step 3: You will receive an OTP on your mobile number; enter the same on the next page when prompted.

  • Step 4: Once all your details are verified, you will be able to view your detailed financial health report along with your CIBIL score.

 

FAQs on How to Remove Your Name from CIBIL Defaulters List

  • ✔️How many years does CIBIL maintain the record of defaulters?

    CIBIL maintains a record of the defaulters for a minimum of 7 years from the date of report of the first delayed payment

  • ✔️Can a CIBIL defaulter avail a home loan?

    The possibility of availing a home loan is quite low for a CIBIL defaulter. However, certain NBFCs do offer loans even if the borrower has a low credit score although at a much higher rate of interest.

  • ✔️How to clear your CIBIL record?

    You should keep the following pointers in mind to clear your CIBIL record and improve your CIBIL score:

     

    ●      Cut back on unnecessary spending

    ●      Check your credit report for errors and, if found, get them rectified 

    ●      Pay your outstanding dues

    ●      Keep your credit utilisation ratio low

  • ✔️How to remove the “Settled” status from your CIBIL report?

    When a borrower is unable to repay a loan amount in full, the lender agrees to a certain settlement amount. However, as the amount is lesser than the total due amount, the lender reports the loan as “Settled”. To change this status, the borrower has to pay the remaining amount and obtain an NOC (No-Objection Certificate) from the lender and file a dispute with CIBIL. The credit bureau will then confirm the information with the financial institution and update the status from "Settled" to "Closed".

  • ✔️How to remove a wrong entry in CIBIL?

    If you find any errors in your report you can raise a dispute at https://www.cibil.com/dispute/. You are required to fill in some details and mention the corrections in your report. CIBIL will investigate this on its part and correct the details.